As The Guardian (and others) report this morning:
The Federal Reserve is proposing to ease a rule aimed at defusing the kind of risk-taking on Wall Street that helped trigger the 2008 financial meltdown.
The Fed, under new leadership on Wednesday, unveiled proposed changes to the Volcker Rule, which bars banks' risky trading bets for their own profit with depositors' money. The high-risk activity is known as proprietary trading.
It should be added that they also note:
The proposed changes would match the strictest applications of the rule to banks that do the most trading — 18 banks with at least $10bn in trading assets and liabilities. They account for 95% of all US bank trading and include some foreign banks with US operations, Fed officials said.
I take no comfort from this. What I do note, and what I am sure the Fed and Trump want the world to note is that the post 2008 rule is being relaxed.
We can dismiss this as just another example of Trump seeking to overturn anything Obama did Tio Naomi extent that would be a correct interpretation: the limitation on the relaxation suggests that the Fed is trying to limit Trump's desire in this regard. But on this occassion this is not the message the White House is sending out. They are saying this is instead all about removing red tape.
What we already know is that the world economy is in a perilous state.
There is a risk of a significant trade war.
Italy is tottering in all sorts of directions and what might fall there, and when, is anyone's guess.
Brexit has yet to really wreak its havoc on the world.
The oil price rise threatens instabilities.
And markets remain overvalued, about which fact governments are powerless to act because they have no tolls to do so.
What is more, many of the reforms thought essential after 2008 have yet to have impact, not least in the UK.
And now Trump is seeking to unwind regulation that did have some beneficial effect in ring-fencing systemically important banks from risk.
And in this regard, the idea that only 95% of banks matter is just wrong. This assumes that banks carry all their own risk on their own balance sheets. If 2008 proved anything it was that this is not the case. Bank risk is systemic, and risk in one bank always creates risk in another and no bank can ring fence itself from this. This is, of course, why market liquidity collapsed in 2008: no one could appraise overall risk in the marketplace, and this is exactly what would happen again if the Volcker rule were to be relaxed.
I despair. There are days when even I find it hard to be optimistic: this might be one of them. It's as if he wants to create the next global financial crisis. But then, maybe he does. The wealthy did very well out of the last one.
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Keep bashing your head agin’ the wall Richard, I can see some cracks forming!
“Brexit has yet to really reek its havoc on the world.” I think that’s an exaggeration, Richard.
Why?
It has not happened as yet
How would it wreak havoc on the world?
By creating trade disruption in a major trading nation and currency disruption for sterling as a result
Carol Wicox says:
“Brexit has yet to really reek its havoc on the world.” I think that’s an exaggeration, Richard.”
In so far as it has encouraged the Italians to think there might be a viable exit from the Eurozone, the havoc may well be underway. Not that there is any assurance yet, that Brexit exemplifies a ‘viable exit’ from the EU. If the Eurocrats handle this wrongly the financial cross contagion will spell disaster for economies apparently only peripheral to the Italian ….crisis(?),; Including the city of London and all that entails for the rest of us in thrall to their young hooligans (some of them only know of the 2008 GFC as ancient history, they don’t think it’s going to happen to them, they were still at school at the time, and have only ever worked in a bull market.)
First to hit the mincer ? It is suggested: ” The three specific banks most exposed are BNP Paribas (French), Dexia (French-Belgian) and Banco Sabadell (Spanish). Banco Sabadell also happens to own the UK bank TSB….”
And that’s just the first three dominoes.
a financial crisis and an unnecessary war or blockade against Iran
It seems to me that the EU should take action to prevent the repeat of contagion from the US financial system.
Stricter regulation of US and international banks operating in Europe, and the same for the European banks operating in the USA.
Of course in view of the upcoming unilateral imposition of tariffs, I think European manufacturers operations in the USA should consider moving operations to countries in that hemisphere that have treaties with the EU. Canada and Mexico come to mind.
… and worldwide emissions of CO2 are 60% higher than when the UNFCC scientists first warned everyone in 1990.
28 years later, in the UK there has still been no decrease in our emissions when our share of aircraft, shipping and emissions embodied in imported goods are taken into account.
Talk of ‘clean growth’ does not hide the fact that the vast majority of electricity is still generated from fossil fuels – which also power nearly all of our transport. Worldwide subsidies (such as tax breaks in the UK) for fossil fuel production are seven times those for renewables.
Our shores will be inundated by sea water within the lifetime of children now born because Greenland and the Antarctic are melting at a rate acclerated by our actions. Still there is talk of ‘growth’ as though it is consequence free.
To repeal, or tinker with the Volker Rule is a bit like the alternative version of the Little Dutch boy with his finger in the dyke.
The version where he takes his finger out because it’s time for tea.
I agree with your analysis of the threat and only query the extent to which Trump is architect of this folly.
As long as you are using ‘Trump’ as shorthand for ‘Swamp Critters’ of the elite, I think you’re spot-on.
What I detect is rising concern amongst the financial big players, that the real economy will no longer support the current rate of pillage and it’s time to open the field to auto-cannibalism.